Innovation failures cost UK companies 65 billion a year

29 October 2015 4 min. read
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Innovation failures are costing UK organisations up to £64.7 billion per year, and further depress what is already considered the productivity puzzle in the UK. In a bid to understand the issues, PA Consulting recently asked organisations globally about their innovation activities, finding that, while many have good ideas, these ideas are failing to be implemented for avoidable reasons. Further, barriers mainly from risk adverse and cost cutting business culture continue to stifle innovation.

A new study by PA Consulting, titled ‘Innovation as Unusual’, looks into the phenomenon of innovation. The survey for the study involved 751 senior business and government executives, of which around 420 respondents were from the private sector, including 156 respondents from the UK. Of these, almost half (47%) had annual revenues between $100 million and $1 billion, and almost a third (32%) had revenues exceeding $1 billion.

Innovation puzzle
Productivity has remained a stubborn issue globally. Particularly the UK has suffered low productivity in recent years, now existing in what is sometimes described as the ‘productivity puzzle’, with the resolution of the puzzle worth an estimated £117 billion to the UK economy.

Although the solution to the puzzle has yet to materialise, one often cited way towards its resolution is innovation. Yet innovation itself comes with its own puzzles. The traditional approach to innovation – siloed within an R&D department – may, according to PA Consulting, no longer be functional in today’s rapidly changing business environment.

Source of innovation

Where does innovation come from?
As part of the research, the consulting firm asked respondents about the sources of the innovations that are eventually implemented within their organisation. Contrary to the idea that innovation is something developed in the R&D department, the survey respondents say that general employees or front-line staff (15%) and listening to the customers and the market (15%) are the biggest sources of innovation. Dedicated in-house innovation teams produce 14% of innovation, while R&D departments are only implicated in 10% of company innovation measures.

“A siloed approach to innovation is unlikely to succeed. To deliver transformational results, innovation has to move beyond the R&D department and become firmly embedded in the culture of the organisation,” explains Marcus Agius, Non-Executive Chairman at PA Consulting.

Why brilliant ideal fail for avoidable reasons

Poor innovation
To stay competitive, businesses need to be innovative. However, the study finds that only about half of organisations attempt to be pioneers in innovation. Further, when organisations do create a good idea through one or another avenue, half report that the good idea fails because of avoidable reasons. The biggest reasons cited by the respondents for good innovative ideas being lost are a lack of budget, people or skills (29%), difficulty moving beyond small scale (24.9%), overzealous risk management (23.8%) and poor implementation of ideas (23.8%).

As a result, using available figures about investment in innovation in the UK, PA Consulting finds that organisations may be flushing as much as £64.7 billion down the drain yearly, equivalent to half the EU’s annual budget or more than half of the value of the productivity lost yearly to the puzzle.

Barriers to innovation within organisations

Barriers to innovation
Organisations are struggling to develop and commercialise their best ideas at pace. According to the respondents, a number of barriers exist that inhibit  their company moving to innovate more and avoid the unnecessary reasons for innovation failures. These barriers stem from deeply engrained cultures that are broadly risk adverse and seeking cost cutting over attempting to create something new.

The main biggest barrier faced by organisations in being innovative is scaling up ideas for large-scale use, mentioned by 25.3%. Difficulty in measuring ROI is the second biggest barrier cited by 25.2% of respondents. Insufficient investment – often from overzealous risk management – is considered the third largest barrier at 24.5%. Further issues exist, including embedding change and improvement in a sustained way (21%), inadequate market insight and intelligence (20%) and ineffective decision-making (19.7%).

The authors conclude: “Our findings suggest that organisations with an embedded culture of innovation, reinforced by leadership that encourages and nurtures innovation, are more successful at translating their efforts into financial reward.”